Friday, February 1, 2008

Economically speaking, what should we hope for this political season? From a purely economic perspective, the best thing we can hope for as a result of the coming election is gridlock - where neither side gains a strong footing in the coming election. You might detect a hint of cynicism in that statement and I guess when it comes to politics I can get a little cynical from time to time. But in this instance I simply believe that a scenario where no single politician or party has much power is a good thing, at least for the economy. As you've heard time and again from me, the economy is cyclical. Periods of expansion, where everyone's smiling and enjoying the good life - and periods of contraction where things slow down and the future is uncertain (by the way, one can't exist without the other). No one likes contractions (recessions), and when they come it's an opportunity for the political party not in office to point the finger at the one that is (and make no mistake, both parties do it). When in reality, there's no politician to legitimately blame. Just like there's no politician to legitimately credit when the economy expands.

Take the 90's for example - the decade of the technology/internet revolution. President Clinton was fortunate enough to preside over the largest economy on the planet during the greatest economic expansion in modern history. I do think Bill should get his fair share of the credit - Bill Gates that is. As far as the president goes, Fred Flintstone would have gone down as one of the greatest presidents in history (economically speaking) had he held office during the 90s. Alan Greenspan was fortunate enough to be the FOMC chairman during the 90s and goes down as one of the all time best. While I'm sure Mr. Greenspan sports a very high IQ, I think Barney Rubble could have been fed chairman in the 90s and we'd have done just fine. I know what some of you are thinking; "hey that's not fair, didn't Greenspan raise and lower interest rates at just the right times, and add or remove liquidity from the system just when the economy needed it to keep things on track"? Nah, I don't buy it. Barney Rubble would have done just fine. You see the technology revolution, plus very favorable demographics catapulted the economy forward, all the while companies were using the new technology to become more efficient, which kept inflation at bay. Yep I say it again; Barney Rubble would have done just fine.

Now before anyone sends me an email chastising me for ignoring the real good or the real bad that the Ronald Reagans, Bill Clintons, or George Bushs of our past had accomplished, I'm just expressing my thoughts as it relates to their economic impact, not their social impact (I don't know how good Fred Flintstone's foreign policy would have been, or his views on trade, immigration, welfare reform, etc). You could chastise me however for not mentioning the impact taxation can have on the economy, and I'll have to give you that one. My last newsletter "Taxes" suggested that tax policy can have a direct and measurable impact on the economy. But right now the tax system is very supportive of capital investment which is good for the economy and for all citizens regardless of their level of income. So again, when I'm thinking purely economically (not socially)